CBN weakens naira to 307/$ for first time to converge multiple FX rates

A trader changes dollars for naira at a currency exchange store in Lagos, Nigeria, February 12, 2015. REUTERS/Joe Penney/File Photo

LAGOS – Nigeria’s central bank on Monday weakened the naira marginally, selling dollars at 307 naira each for the first time on the official interbank market, in what traders say could signal a gradual move to merge its multiple exchange rates.
Nigeria’s convoluted exchange rate system has been used to manage what the central bank described as “frivolous” demand for dollars at the peak of a currency crisis which began two years ago.

The West African country now has at least five exchange rate including the official one which the bank used to mask pressure on the currency. In April it allowed foreign investors to trade the naira at market determined rate, which has weakened the currency to around 360.

The bank has sold $500,000 almost on daily basis on the official spot market since creating several exchange rates to alleviate dollar shortages. However it had sold the currency at rates of between 305 naira and 306 naira for months before Monday’s move.

”It’s possible the central bank is working towards a gradual convergence of rates, one trader told Reuters.

Earlier this month the bank sold dollars at 306 naira for the second time after maintaining a level of around 305 naira on the spot market for two months.

Dollar shortages gripped Africa’s biggest economy as crude sales, Nigeria’s mainstay, plunged at the start of an oil price rout in 2014. That triggered a recession last year and frustrated businesses, which had to find dollars on the black market as a result.